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Maintaining regulatory compliance

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The challenge of tax compliance

• A business must ensure ongoing compliance with all Canadian tax rules and regulations, including bulletins up-dates released by the Canada Revenue Agency (CRA).

• Capital Cost Allowance (CCA) is the means by which a Canadian business may claim depreciation expenses for calculating taxable income under the Income Tax Act.

• Form T2SCH8 is used to calculate and file tax deductions for CCA on assets acquired in 2006 or later.

• In the year the property is acquired, usually only on one-half of the net additions to a class can be claimed.

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How does CCA work?

• Assets are divided into over 50 groups with appropriate CCA rates assigned to them.

• The declining balance method is used to calculate CCA deductions based on CCA rate.

• Provinces and Territories often have additional regulations governing CCA reductions.

• In contrast to the practice followed in the United States, there is no penalty for failing to claim Capital Cost Allowance. Unclaimed amounts are not subject to recapture but can be deducted in future tax years.

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What is NOT eligible under CCA?

A number of assets are NOT eligible for CCA deductions, as per regulations and ruling of the Income Tax Rulings Directorate, which is the center of income tax expertise within the Canada Revenue Agency (CRA).

• Land and living things, such as trees, shrubs, or animals

• Property the cost of which is deductible in computing the taxpayer's income

• Property that is already described in the taxpayer's inventory

• Property that was not acquired for the purpose of producing income

• Specified artwork and crafts acquired after November 12, 1981

• Property that is a camp, yacht, lodge or golf course or facility acquired after December 31, 1974

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Accelerated CCAThe CRA and the tax authorities in provinces and territories have released a number updates and exceptions which allows for an accelerated CCA. Eligible assets include:

• Clean energy generation Currently, class 43.1 and class 43.2 provide accelerated CCA at a rate of 30% and 50% respectively, on a declining-balance basis, for specified clean energy generation and energy conservation equipment.

• Mining For expenses incurred after March 20, 2013, the accelerated CCA for eligible assets acquired for use in new mines or eligible mine expansions will be phased-out as follows: 90% in 2017, 80% in 2018, 60% in 2019, 30% in 2020 and 0% after 2020.

• Manufacturing and processing machinery and equipment Eligible machinery and equipment acquired in 2014 or 2015, will be eligible for a temporary accelerated CCA rate of 50% on a straight-line basis.